BIR: Tax perks of nonprofit firms not automatic

The Bureau of Internal Revenue has issued a directive reiterating that the renewal of the tax exemption of nonstock and nonprofit organizations is not automatic.

According to the BIR, these organizations should apply for a renewal of their tax incentive and their operations subjected to review before the BIR decides whether or not the tax-exempt privilege can be restored.

A tax-exempt privilege is good for only three years, according to the BIR. As such, the BIR said that those that have existing tax-exemptions should apply for a renewal before the three-year limit expires.

In the latest memorandum, signed by Internal Revenue Commissioner Kim Henares, the tax bureau said nonstock and nonprofit organizations that fail to apply for a renewal of their tax-exempt status will lose the privilege.

The directive is aimed at plugging revenue losses for the government arising from the abuse of the tax incentive system, the tax bureau said.

“Failure to renew the tax exemption ruling shall be deemed revocation thereof upon the expiration of the three-year period,” the BIR said in Memorandum Order No. 28-2013 issued last week.

The memorandum complements an earlier one issued in July—Memorandum Order No. 20-2013—that clarifies the rules on the tax exemption of non-stock and non-profit organizations.

The earlier memorandum states that only the following nonstock and nonprofit organizations will be given tax-exempt privilege: Religious, charitable, scientific, athletic and those catering to welfare of veterans.

It also requires the submission of documentary requirements, including financial statements and articles of incorporation, in the renewal of tax-exempt privileges.

It added that income-generating activities other than those aimed at pursuing the organizations’ mandates are taxable.